Verona Pharma - Q4 2023

Transcript

Operator (participant)

Welcome to Verona Pharma's fourth quarter and full year 2023 financial results and operating highlights conference call. At this time, all participants are in a listen-only mode. Earlier this morning, Verona Pharma issued a press release announcing its financial results for the three months and full year ended December 31, 2023. A copy can be found in the Investor Relations tab on the corporate website, www.veronapharma.com. Before we begin, I'd like to remind you that during today's call, statements about the company's future expectations, plans and prospects are forward-looking statements. These forward-looking statements are based on management's current expectations.

These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from our expectations expressed or implied by the forward-looking statements. Any such forward-looking statements represent management's estimates as of the date of this conference call. While the company may elect to update such forward-looking statements at some point in the future, it disclaims any obligation to do so, even if subsequent events cause its views to change. As a reminder, this call is being recorded and will remain available for 90 days. I'd now like to turn the call over to Dr. David Zaccardelli, Chief Executive Officer. Please go ahead.

David Zaccardelli (CEO)

Thank you, and welcome everyone to today's call. With me today are Mark Hahn, our Chief Financial Officer, Dr. Kathleen Rickard, our Chief Medical Officer, Chris Martin, our Chief Commercial Officer, and Dr. Tara Rheault, our Chief Development Officer. 2023 was a pivotal year for Verona Pharma and importantly, for millions of patients suffering from COPD. Following a very positive data from our phase 3 ENHANCE program, we submitted a new drug application to the FDA seeking US approval of ensifentrine for the maintenance treatment of patients with COPD. As you know, the FDA accepted our NDA for review and assigned a PDUFA target action date of June 26, 2024, and indicated they are not planning to hold an advisory committee meeting to discuss the NDA.

We continue to advance our preparations for the planned commercial launch of ensifentrine in the US and look forward to continuing our work with the FDA during their review. If approved, ensifentrine is expected to be the first novel inhaled mechanism available for the treatment of COPD in over 20 years. We believe its dual mechanism, providing bronchodilator and non-steroidal anti-inflammatory activity, has the potential to change the treatment paradigm for COPD. Currently, more than 390 million patients suffer from COPD worldwide, and it is the third leading cause of death globally. Despite the availability of existing COPD treatments in the US, approximately 50% of patients experience persistent symptoms for more than 24 days per month. In addition, approximately 60% of patients who could be considered maximally treated on dual bronchodilators or triple therapy are dissatisfied.

This highlights HCP's continued need for new and effective COPD therapies to provide relief to their patients. In October, we hosted an investor event where we presented a comprehensive update on our commercial launch preparations. We continue to make excellent progress on this front, including strengthening our commercial and sales team and continuing to finalize key tactics, including our distribution and patient service programs, our branded HCP and patient engagement plans, and our internal data infrastructure capabilities to allow quick and actionable insights during launch. We have also continued the rollout of our disease awareness campaign, Unspoken COPD, which launched at the CHEST meeting. The campaign is actively highlighting the severe impact of COPD on patients' lives and encourages HCPs to engage patients in a better dialogue to help optimize their care. Overall, we believe we are in a strong position to successfully launch ensifentrine, pending approval in June.

This confidence is based on the novel profile of ensifentrine, the significant unmet need in COPD, our commercial preparation, and the deep experience and capabilities of the Verona team. In addition to the planned U.S. launch of ensifentrine, we progressed development of two new phase 2 programs. First, we are developing a fixed-dose combination formulation with ensifentrine and glycopyrrolate, a LAMA, for the maintenance treatment of COPD delivered via nebulizer. Fixed-dose combination therapies are commonly used in the treatment of COPD, historically in DPI and pMDI formulations. Based on market research, an unmet need exists for a nebulized fixed-dose combination therapy. We believe the combination of ensifentrine with a LAMA could provide COPD patients with the first nebulized fixed-dose combination that provides bronchodilation through two complementary mechanisms and also non-steroidal anti-inflammatory effects.

This combination was assessed in the ENHANCE program, where ensifentrine added on to LAMA demonstrated robust efficacy and safety compared with placebo added on to LAMA. Upon confirmation of an adequate fixed-dose combination formulation, we plan to submit an investigational new drug application to the FDA in the second half of 2024, and plan to start a phase IIB clinical program intending to support dose selection for phase III. In this program, we anticipate a dose-ranging trial in patients with COPD to identify the appropriate dose of nebulized glycopyrrolate in the fixed-dose combination, and a second dose-ranging trial with a fixed-dose combination versus individual components using a factorial design. Both trials are planned as randomized, double-blind, crossover trials in approximately 50 patients, each with lung function endpoints.

Additionally, based on the clinical profile of ensifentrine observed in COPD patients, including a reduction in exacerbation rate and risk, and improvement in symptoms of cough and sputum, we believe ensifentrine could potentially be an effective treatment for non-cystic fibrosis bronchiectasis. This is a severe chronic condition where the airways of the lung become abnormally widened, leading to a cycle of infection, inflammation, and exacerbation that cause lung tissue damage. The condition affects up to 500,000 patients in the U.S., and there is currently no approved therapy. Despite the lack of approved treatments, HCPs use bronchodilators, antibiotics, steroids, mucus thinners, and surgery to treat patients. We plan to commence a phase II clinical trial to assess the efficacy and safety of nebulized ensifentrine in patients with non-CF bronchiectasis in the second half of 2024.

The trial is planned as a randomized, double-blind, placebo-controlled trial in approximately 180 patients with non-CF bronchiectasis over approximately 24 weeks. Endpoints, including exacerbation, symptoms, and lung function, will be assessed in this trial. Moving on to our finances, I am pleased to report on our strong balance sheet. In support of our commercialization activities, as well as our continued pipeline expansion, in December, we enhanced our financial flexibility through a debt financing facility, providing access to up to $400 million. We borrowed $50 million at the closing and may draw an additional $100 million upon approval of ensifentrine. Future draws are available upon certain commercial milestones and other conditions.

With our current cash balance and the expected proceeds available under this debt facility, we believe we are in a strong financial position as we prepare to launch ensifentrine in the U.S. in advanced new clinical programs. Turning to our global partnering strategy, our development partner, Nuance Pharma, is continuing enrollment in a pivotal Phase 3 trial of ensifentrine for the maintenance treatment of COPD in China. As a reminder, Nuance Pharma has exclusive right to develop and commercialize ensifentrine in Greater China, and as such, will play a key role in addressing the global need for a novel treatment for COPD. We look forward to providing updates as Nuance's trial progresses. We are pleased with our progress in important areas, including regulatory accomplishment, commercial preparation, and new program development. I will now turn the call over to Mark to review our financial results for 2023.

Mark Hahn (CFO)

Thank you, Dave. We ended 2023 with $271.8 million in cash and equivalents. We believe our balance sheet remains strong, and with the cash currently on hand and funding anticipated to be available under the recently closed $400 million debt facility, we expect to have sufficient runway at least through the end of 2026, including the planned commercialization of ensifentrine in the U.S., if approved, and the two phase 2 development programs Dave discussed a few moments ago. For the year ended December 31, 2023, net loss after tax was $54.4 million, compared to a net loss after tax of $68.7 million for the prior year.

This represents a loss of $0.09 per ordinary share or $0.69 per ADS for the year, compared to a loss of $0.13 per ordinary share or $1.04 per ADS in 2022. Research and development costs were $17.2 million for the year ended December 31, 2023, compared to the $49.3 million reported for 2022. This decrease was driven by less cost incurred on the ENHANCE phase III program, which completed study conduct and analysis early in 2023, whereas in 2022, significant costs were incurred associated with the then ongoing study conduct. Selling general and administrative expenses were $50.4 million for the year ended December 31, 2023, compared to $26.6 million reported for the prior year.

...This increase was driven primarily by a $15.6 million increase in people-related costs as we expanded our headcount with key hires in medical affairs and commercial positions, inclusive of share-based compensation, as well as an increase of $9.7 million related to the build-out of the commercial and information technology infrastructures, marketing and market development expenses, and costs associated with our medical affairs team's increased presence at local, regional, and national medical conferences. I'll now turn the call back to the operator for the Q&A.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Andrew Tsai with Jefferies. Please go ahead.

Andrew Tsai (Managing Director)

Hey, thanks. Good morning. Appreciate the updates. Thanks for taking our questions. So, a couple on our side. And I guess for the first one, for the ongoing NDA review, I know the FDA continues to indicate no Ad Comm, but since we're basically 3-4 months away from the PDUFA, I'm just curious, how realistic is this scenario at this juncture? Is it fair to essentially rule out a potential Ad Comm or not yet? And secondly, how has the FDA dialogue been? Have they finished with CMC inspections? And if there seems to be no real issues with review, you know, could an early approval be a possibility, and would you be ready to launch if that were the case? Thanks.

David Zaccardelli (CEO)

Hi, good morning, Andrew. Thanks for the questions. So let me talk about the Ad Comm. You know, I think, of course, anything is possible, but as you sort of outlined, you know, time continues to move forward, and the FDA has communicated to us twice that they're not planning to have an Ad Comm. So, that's our operating philosophy on that. But again, let's be aware that anything can happen. With regard to the review, I mean, I think I would just say it continues and is ongoing. You know, I think that with regard to inspections, we've had clinical inspections.

I think that both our API and drug product manufacturer are facilities that are known to the agency, and so how they're managing inspections is in their court. And with regard to, you know, early approvals, you know, I would just say that the PDUFA is June 26th. That's how we think about it, and we'll adjust accordingly. Are we prepared to launch? In many ways, yes. I think that some of the things that affect that timing always at the end are, you know, the label, the final, you know, artwork, packaging, labeling, distribution aspects that happen no matter when, you know, an approval occurs. So, but overall, we're very pleased with where we are with our supply chain.

Andrew Tsai (Managing Director)

Okay, very good. Thanks. Maybe just one more is, let's just say you guys are approved and are launching in second half. Hypothetically speaking, if the launch trajectory doesn't ramp up immediately, it doesn't look strong right off the bat, why would that be the case? Just curious how you think, what could go wrong, and how you're thinking about these potential risks. Thank you.

David Zaccardelli (CEO)

Hmm. Yeah. So, you know, I'll make a general statement. I think that, you know, I think based on all our work we've done to date, all the market research, the work that we have done with HCPs, you know, we feel confident that the need is there, and that the launch will go well, you know, in our view. But I'll ask Chris to comment on anything that is on his mind in regard to, you know, risk.

Chris Martin (Chief Commercial Officer)

Yeah. Yeah. Thank you, Dave, and, Andrew, appreciate the question as well. If we think about launches, what you typically see in a lot of launches that are slower, challenges with market access, I think we've been able to mitigate that risk partly due to the channel that ensifentrine will flow through, being that it is primarily a Medicare Part B medical reimbursement pathway. You know, that risk of slower uptake of new product launches is not essentially eliminated, but is mitigated by the pathway of reimbursement of ensifentrine. You know, and I think internally, we've done a very good job of ensuring that we understand that pathway. Our limited distribution network that we talked about in the October meeting allows for those specialty DME-accredited pharmacies to really understand and adjudicate prescriptions the appropriate way.

And we think, you know, when we think about how ensifentrine's launch would be versus potentially other launches that people are familiar with, that market access dynamic is something that always is in the back of your mind. But because of the reimbursement channel, we believe that ensifentrine will flow through the channel in an appropriate fashion and in a fashion that meets what we've seen in market research, which is physicians' willingness to add ensifentrine across the spectrum in a variety of patients who remain persistently symptomatic. That dynamic, I think, is very favorable for us as we move forward into launch.

Andrew Tsai (Managing Director)

Great. Thanks again.

Operator (participant)

The next question comes from Yasmeen Rahimi with Piper Sandler. Please go ahead.

Yasmeen Rahimi (Managing Director and Senior Research Analyst)

Good morning, team, and thank you so much for all your thoughtful comments. A few questions for you. I guess the first question is: Have you started the discussion with the agency in regards to label negotiation? What is your perspective on what your ask is in regards to the label? That's part one. Part two is, as we go into June twenty-sixth, obviously, once the label is available, you'll host a call.

Could you tell us if you're gonna be able to be in a position to also share pricing at that juncture? And maybe the pricing range that you guys have given us has been quite wide, so would love to get your perspective how you're thinking about it and how payers are perceiving that range. And then the third question is for Mark, which is, you know, how should we be thinking about OpEx over this year and next year as you're building a commercial infrastructure? And thank you again, team, for allowing me to ask these three-part questions.

David Zaccardelli (CEO)

Good morning, Yas. Thanks for that. I'll start with the first one with regard to labeling. Again, we won't really comment on all the review back and forth with the agency. I would point out that it, you know, is fairly early still in the process with maybe around 4 months or so to go. And so, I think that from my experience in past reviews, we're about where we need to be. But of course, they're all different in their own right. But I think that it is a little early in the process right now on the labeling end of things.

And with regard to what's in the label, I mean, I think that we put forward many of the aspects that I think everyone knows with regard to the indication for the maintenance treatment of COPD. And, of course, we represented comprehensively the results from the clinical trials, of course, with the emphasis from the ENHANCE program and, of course, all the other important elements that you'd expect in a label from CMC to non-clinical that are included. So I think our submission was comprehensive in nature. With regard to pricing, you know, yes, I think that with approval, we'll be well versed in how we're pricing ensifentrine. But I'll ask Chris just to comment on the range of pricing.

Chris Martin (Chief Commercial Officer)

Yeah, thanks. Thanks, Dave, and, Yas, appreciate the question as well. When it comes to pricing, we have provided a fairly large range there. I think, you know, when we think about the market today, we know that the current nebulized products, like Yupelri, are somewhere in the $1,400 a month range. And then we also use Dupixent, upwards of $3,800 a month, as kind of an upper bound of pricing. The other thing that we have done from a work standpoint is understand kind of the value that ensifentrine brings to the marketplace, to patients, to physicians in the system. We believe that value is substantial.

You know, when we think about exacerbation data, lung function data, symptom improvement data, and a benefit risk profile that Dave's described numerous times, we believe that value is very high. So when we've had discussions with primarily on the Medicare Advantage side, with those payers, what they've told us is they expect ensifentrine to be a premium to the current nebulized products. Remember, the current nebulized products are single LAMAs or LABAs, so the profile of ensifentrine with bronchodilation, non-steroidal anti-inflammatory, is very different. So we believe we do have some pricing flexibility based on the value ensifentrine brings to the marketplace.

I think we are also looking at other dynamics that are in play, including IRA, Inflation Reduction Act, to ensure that we're pricing ensifentrine appropriate to the value that it provides the patients and the physicians and the system. And as Dave said, we'll be in a very good place, come PDUFA to be able to provide specifics around that.

David Zaccardelli (CEO)

Mark-

Chris Martin (Chief Commercial Officer)

I think Mark, OpEx was-

Mark Hahn (CFO)

Yep, I'll take the OpEx question. So, yes, the OpEx for Q4 was about $19 million, a little over $19 million. I think you can expect that over the course of 2024 to tick up sequentially, with a couple caveats, and get to maybe a little bit more than double where it is today by the end of the year. Along the way, there will be a couple of bumps in spend. One is, upon approval, we have a GBP 5 million milestone payment that's due to Ligand, so that'll be an incremental one-time expense in Q2, presumably. And then upon launch, we have a $15 million milestone payment due to Ligand as well, so another one-time payment expense in that, in the period of launch.

Yasmeen Rahimi (Managing Director and Senior Research Analyst)

Thank you so much, Mark.

Mark Hahn (CFO)

Thanks, Yas

Operator (participant)

The next question comes from Caroline Pocher with Wedbush Securities. Please go ahead.

Caroline Pocher (Equity Research Associate for Emerging Pharmaceuticals)

Hi, good morning. This is Caroline for Andreas, and thanks for taking our questions. So just one for us. We noticed the Dupixent sBLA for COPD has a PDUFA date of June 27th, which happens to be the day after ensifentrine's PDUFA date. Even though Dupixent can only be used in a subset of COPD patients and ensifentrine more broadly, does this proximity and potential approval and launch change anything about your commercial strategy?

David Zaccardelli (CEO)

I think... Hi, good morning, Caroline. No, I think the short answer is no. I think also, you know, we noted that, and I think it's good for COPD in general, and the attention this severe disease is getting. And I think it's great for the patients that Dupixent applies to as well. As you mentioned, is a fairly small subset of the entire COPD population in the U.S. that's under treatment. But it doesn't change our view of ensifentrine, how ensifentrine would be utilized in patients who are symptomatic across the spectrum of the disease. And for that matter, you know, I don't know if there's anything that really conflicts with ensifentrine and Dupixent from a pharmacology basis as well.We see ensifentrine's application the same as we did before.

Caroline Pocher (Equity Research Associate for Emerging Pharmaceuticals)

Okay, awesome. Thank you so much, and congrats on all the progress.

David Zaccardelli (CEO)

Great. Thanks so much.

Operator (participant)

The next question comes from Xinwei An with Canaccord Genuity. Please go ahead.

Xinwei An (Equity Research Associate)

Hi, good morning. This is Xinwei An for Edward. Sort of a follow-up question after the Dupixent one. We would like to ask about the physicians' mindshare. So based on the feedbacks that you have collected from prescribers, do you maybe project or do you foresee if they would have a preference in how they would use different therapies? Thank you.

David Zaccardelli (CEO)

Yes. So thank you so much for the question. Maybe I'll have Chris comment on that in general.

Chris Martin (Chief Commercial Officer)

Thanks, Dave. When we look at our market research, it—I mean, the market research that we've done is extraordinarily extensive. I think we're close to well over 1,000 physicians surveyed across all specialties, both pulmonology, primary care, and we've also spent a lot of focus on nurse practitioners and PAs. I think what we see in that market research is, I'm gonna boil it down to really two things. One, is we see consistency in the unmet need that exists, and we see this both from patients and physicians. We see that patients are complaining, as Dave described in his opening comments, of persistent symptoms. At least half of these patients are having persistent symptoms regardless of therapy.

And then we also hear from the physicians when a patient is persistently symptomatic, they lack options or new ways to treat these patients. What they're excited about in our market research is how broad of a utilization ensifentrine can have. They see this this drug in a very wide variety of places, and they see it as, you know, potentially as an add-on to all therapeutic classes that exist today when a patient remains persistently symptomatic. But they also continue to express to us why this drug couldn't be potentially used on its own, and maybe push ICS and the steroids to a later line therapy. You know, across all our research, what we see is that, you know, the adoption and the willingness to try ensifentrine is very high.

I think when we, when we did represent it in October, we talked about almost 90% of the physicians surveyed talking about adopting ensifentrine within the first 12 months. That doesn't change with, you know, entry of Dupixent or even potentially either other products that are in the pipeline. Because foundationally, what ensifentrine provides them is the first novel mechanism that works broadly across all their patient populations, regardless of background therapy, regardless of eosinophil counts. It allows them a new foundational therapy that their patients and the doctors desire to have within their practice.

Xinwei An (Equity Research Associate)

Okay, great. Thank you.

Operator (participant)

The next question comes from Joon Lee with Truist Securities. Please go ahead.

Speaker 10

Hi, good day, and congrats on the quarter, and thanks for taking our question. What are your expectations for this fixed-dose nebulized ensifentrine plus LAMA in COPD space? Are there any specific subpopulations being unlocked with this combo? Any color would be helpful. Thank you.

David Zaccardelli (CEO)

Thanks so much for the question. I'll just make a brief comment and then ask Dr. Tara Rheault to comment as well. I think that our view is that it's a natural progression with regard to products for the treatment in COPD. As you may know, the combination products are very commonly used in combining different bronchodilators, anti-inflammatories together, and combining ensifentrine with a LAMA, I think makes natural sense. I think our view is that it would address a fairly broad population in COPD as well, as this is a typical treatment. And with that, I'll turn it over to Tara to make any comments.

Tara Rheault (Chief Development officer)

Sure. I think one of the real important features of the fixed-dose combination that we're preparing is that you've got ensifentrine with bronchodilatory and anti-inflammatory pharmacology combined with another bronchodilator. So you have essentially two bronchodilator mechanisms and an anti-inflammatory mechanism that's non-steroidal. Essentially giving you the profile of a triple in this fixed-dose combination. So we think it will be a very important alternative to triple therapy for quite a few patients.

Speaker 10

Thank you. Sorry, I forgot to mention this was me, Ian, for Joon. Thanks for taking our question.

David Zaccardelli (CEO)

Thanks so much.

Operator (participant)

As a reminder, if you have a question, please press star then one to be joined into the queue. The next question comes from Tom Shrader with BTIG. Please go ahead.

Tom Shrader (Equity Research Analyst)

Good morning. Good luck on the PDUFA date. We've been waiting for this forever. I have a follow-

David Zaccardelli (CEO)

Good morning, Tom.

Tom Shrader (Equity Research Analyst)

I have a follow-up on the mixed product. You're doing an awful lot of dosing when, you know, you've already shown it's safe and efficacious at doses. Are you trying to? Is the hope that this would really be a different product than the combination, and that you would maybe get at some of the synergies that you saw in your early data?

David Zaccardelli (CEO)

Yeah. Thanks. Thanks so much, Tom, for that question. Tara, if you'd like to comment on our strategy on dose selection and exploring that in these trials.

Tara Rheault (Chief Development officer)

Sure. Yep. So this is a new product. It's a new formulation. That's a requirement in order to feasibly combine ensifentrine and a LAMA. And so... Let's see. What was the second part of your question again? I'm sorry.

Tom Shrader (Equity Research Analyst)

Well, there's some interesting synergies between ensifentrine and LAMAs in the early preclinical data about rapidity of action. And the question is, are you hoping to capture some of that?

Tara Rheault (Chief Development officer)

Oh, of course. You know, that early data did show some synergistic effects with ensifentrine and glycopyrrolate and other muscarinic antagonists, and that certainly was mirrored in the phase three data we saw on top of long-acting muscarinic antagonists.

Tom Shrader (Equity Research Analyst)

Okay. If I could follow up quickly on bronchiectasis, would you try to develop a second product? Would it look different than the COPD product? Because you're kind of in an orphan indication, so the price points might be very different.

David Zaccardelli (CEO)

Yeah, no, I think, Tom, our strategy is actually to progress with the current formulation. Of course, that's very efficient, as you can imagine. And I think as an incremental indication, while it's not technically an orphan, I appreciate that the number is closer to orphan than not. We're addressing it as just another indication, which is great in helping patients that ensifentrine in its current formulation could serve.

Tom Shrader (Equity Research Analyst)

Okay, great. Again, good luck.

David Zaccardelli (CEO)

Thanks so much.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to David Zaccardelli for any closing remarks.

David Zaccardelli (CEO)

Great. Thank you, everyone, for your questions today. And in addition, I'd like to thank our shareholders for their continued support and the dedicated and talented team at Verona for their work and commitment. And we look forward to updating you on our progress over the next few months. Have a great day.

Operator (participant)

The conference is now concluded. Thank you for attending today's pre-presentation.